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Supply chain

He has already announced a more integrated structure, unifying the four independent business units – handsets, infrastructure, home broadband and government systems – around the single strategy of seamless mobility and multiple broadband networks.

Now he has hired Stuart Reed to rework Motorola’s global supply chain, and cut costs by reducing the number of suppliers and so increase negotiating power.

Reed says Motorola will also restructure its IT operations, outsource where appropriate, and develop a standard approach to product quality. “Motorola does not have a best in class supply chain,” he says, and has a deadline of the end of 2006 to change that.

The first step is to reduce the number of handset chip suppliers to just three – Qualcomm for CDMA, former Motorola unit Freescale for GSM and W-CDMA and Texas Instruments for DSPs and low end platforms. Motorola has already reduced the number of components it buys for its phones from 300,000 to less than 100,000 and aims to use only 25,000 unique components a year from now.

However, despite the great advantage of its efficient supply chain and the massive purchasing power its market share brings it, Nokia’s famous margins are under increasing stress and, with Motorola hitting gold with RAZR, Nokia – which makes over 85% of its revenue from phones – will need to push the 8800 hard.

Kallasvuo’s challenges

The pressure on the CEO-in-waiting will be intense. Kallasvuo, who was chief financial officer before taking over the phones unit, has certainly reinvigorated the Nokia portfolio in the past year, notably by taking advantage at an earlier stage than rivals of the rising demand from emerging economies, and by introducing clamshell phones. But he has been forced to sacrifice margins to market share with some aggressive price cutting.

Kallasvuo not only has future challenges to meet, but he has a tough legacy to live up to, and will need to create a strong new management team. He is one of the last remaining members of the close-knit management clique that has run Nokia since Ollila took over in 1992. Pekka Ala-Pietila, Nokia's president and Ollila’s chief confidant, has also resigned and will leave in February.

Ollila insisted to the Finnish press that Ala-Pietila had not wanted the CEO job. Other members of the team that transformed Nokia - Matti Alahuhta, chief strategy officer, Sari Baldauf, head of the network division, and Jukka Bergqvist, also a manager in the network division - have all left the company in the past year.

Ollila’s legacy

Although Nokia has been under pressure in terms of margins and market share in the past two years, Ollila has been a remarkable success story since he took the momentous decision to pull the Finnish conglomerate out of all its businesses – which included rubber goods, computers and even bedroom slippers – and focus only on mobile communications.

His team spotted, well ahead of the rest of the market, that cellphones would become fashion accessories, and led the field in shrinking handsets and adopting advanced battery life technology. However, Nokia slipped in 2003 by failing to spot the boom in clamshell models, and it has been losing US market share.

Ollila has laid the foundations for a new revolution at Nokia with the creation of the Enterprise and Multimedia units, the real growth engines for the company. As the margins on devices fall, it will rely increasingly on its software platforms, which it seeks to establish as standards – most importantly, the Series 60 user interface, which Nokia will combine with Java, Linux and various elements such as virtual private networks and push email, to create an enterprise platform to rival Windows in the mobile environment.

His legacy to his successor is strong – the company has stabilized again, and the future growth plan, though ambitious, is well defined and reflects Ollila’s deep and creative strategic thinking, a quality that some fear Kallasvuo lacks. Although a strong tactical operator and with a sharp eye for trends, there is speculation that he will not be the match of Motorola’s Zander in terms of big picture thinking.

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